India services growth at 11-year high in May but input inflation at record: PMI Survey
2 min read 03 Jun 2022, 10:35 AM ISTThe S&P Global India Services Purchasing Managers' Index rose to 58.9 in May from 57.9 in April, its highest since April 2011 and comfortably beating the Reuters poll expectation of 57.5.
PremiumThe growth in India's dominant services continued to grow in May, expanding at the fastest pace in 11 years in May on strong demand and new orders, but inflationary pressures touched new highs, according to a private survey. The S&P Global India Services Purchasing Managers' Index rose to 58.9 in May from 57.9 in April, its highest since April 2011. The 50-mark separates growth from contraction. The May expansion was the longest streak of growth since 12 months of growth between June 2018 and May 2019.
“The upturn was supported by a substantial pick-up in new business growth as demand continued to recover following the reopening of the economy after COVID-19 lockdowns," the survey said, but “inflation showed no signs of abating as price gauges showed an unprecedented increase in input costs and the second-fastest upturn in selling charges in just under five years."
The survey also noted that inflation expectations continued to restrict business confidence, with optimism remaining subdued by historical standards.
“The reopening of the Indian economy continued to help lift growth in the service sector. That said, the inflation outlook appeared to have worsened as input prices rose at the sharpest pace in the survey history. Services firms again reported substantial pressure from food, fuel, input, labour and transportation costs. Output charge inflation softened only marginally from April, being the second-highest in just under five years, as several companies mentioned the need to transfer mounting costs through to clients," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.
Despite remaining optimistic, service providers remained concerned that inflationary pressures would dampen the economic recovery, the survey said.
“The overall level of positive sentiment improved from April, but remained historically low. Still, service providers refrained from taking on additional workers in May. In fact, there was a renewed but only marginal decline in employment," the survey said.
The survey results also highlighted continuing subdued global demand for Indian services, with new business from abroad having now declined in each month since the onset of COVID-19 in March 2020.
Data released earlier this week showed India's economy expanding 4.1% year-on-year in January-March quarter, but a spike in retail inflation due to energy and commodity price rises poses a risk to its growth prospects.
Asia's third-largest economy is grappling with eight-year high inflation that prompted the Reserve Bank of India (RBI) to hike rates in an unscheduled meeting on May 4.
The RBI is expected hike rates further in coming months to curb price pressures.
Strong services and manufacturing activity boosted the composite index to 58.3 in May from 57.6, its highest since November. (With Agency Inputs)
